Ascend when conditions are right. Seek shelter when they are not.
BCM sees the markets through the lens of an advisor. With our background in wealth management, we know the fears and emotions that emerge when it comes to investing.
Our philosophy is based on three main principles:
1. Investors often misinterpret risk.We believe that investors are not risk averse, they are loss averse. The industry’s primary measurement of risk, standard deviation, can be incomplete and is too often misinterpreted by the average investor as maximum drawdown. We focus on the risk we believe investors care about most – losing a lot of money.
Investors who describe investing as involving the risk of losing money.
Source: Franklin Templeton. Investor Resource, Tools.
- Return expected if equity markets are UP 20% 15%
- Return expected if the equity markets are DOWN 20% 2%
- If the market is DOWN 20%, investors expect their equity portfolios to outperform the market by 22%
2. Emotion drives investor actions.Investors tend to make the worst decisions at the worst possible times. When markets falter, fear consumes them and eventually they panic, selling at or near the bottom of a bear market. Then, as the market recovers, it takes so long for the client to feel comfortable reinvesting, they miss a significant portion of the upside, preventing them from recovering their losses.
3. Large losses can devastate a portfolio.
Whether you’re an investment professional or individual investor, large market losses can devastate any portfolio, hindering your long-term results. Why? When a portfolio experiences a large loss, a disproportionate gain is required just to get back to where you started. This investment math further supports the investor’s view of risk and emotion-driven decisions.
Technical mountain climbing:
Carefully traversing a mountain using protective harnesses, ropes and anchors, often as part of a team.
Beaumont investment approach:
Participating in the markets while seeking to protect against large market losses through tactical and dynamic management.